QUESTION 2 (27 MARKS) Currently you are considering two stocks before you decide to invest. Since the market will volatile after the 14th General Election, you have the follwing data to analyse: Probability of State of economy Rate of return Stock Genuine Rate of return Stock Lobaloba (56) occurrence 10 0.1 Boom 0.6 Normal Recession Required: b. Calculate the expected return and standard deviation for each of two stocks. (10 marks) Suppose an investor has 25,000 shares and invests 15.000 in Stock Genuine and remainder in Stock Lobaloba. Stock Genuine currently is selling at RM1.50 per share and Stock Lobaloba at RM3 per share. Compute the expected return and standard deviation of the portfolio. (14 marks) From part a and b, which is the best choice to invest either in Stock Genuine. Stock Lobaloba or portfolio? Why? (3 marks) FORMULA: E(Ri) - PRI + P R + ....... P.R. o'i-P(RA-ECRA)+P (R24 - (RA)*+...+ PRAE(R) Con-PIR- B(R2)][P-ER..)] +PRAE(R2)][P20-E(R) +...+ P.R. E(Rp) - Wix E(R1) + w x E(R) +...+w.x E(R.) o'p-WA0A+W, 2 WA W. Covan